Las Vegas — Wattles Capital Management (WCM), one of the largest independent stockholders of Circuit City Stores, delivered a letter signed by Ultimate Electronics owner Mark Wattles to the struggling chain’s board of directors, seeking a series of major changes to the corporate structure including the replacement of chairman and CEO Philip Schoonover and a change in the company’s retail strategy.
The letter in part blames Schoonover and his management team for the company’s declining performance over the past two years despite much-publicized attempts at turning the company’s business around.
The letter stated, “Approximately two years ago, after what turned out to be a temporary industry-wide oversupply of flat-panel TVs, Circuit City’s senior management initiated a ‘turnaround’ to address what it perceived as a permanent reset to a lower level of gross margins in the industry. Since then, the competition’s gross margins have essentially recovered, but Circuit City’s have further deteriorated, resulting in a ‘turnaround’ that has unfortunately gone in the wrong direction. We believe this has been due, in part, to senior management searching for a ‘silver bullet’ rather than focusing on basic retail execution, such as having the right products for sale, priced strategically, displayed well and sold by the right people. As a result, Circuit City’s performance is now significantly worse than when the turnaround first began. Through a combination of poor decision-making and poor execution, Circuit City’s so-called ‘turnaround’ has adversely impacted the company’s operating performance, destroying billions of dollars of stockholder value in the process. While we cannot say whether a turnaround was needed at Circuit City two years ago, it is quite clear to us that one is needed now.”
With the stated goal of restoring investor faith in Circuit City and unlocking what it sees as “the company’s significant unrealized value,” the letter called for the following immediate changes:
· Replace Schoonover with “a seasoned executive capable of restoring credibility with employees, vendors and stockholders.”
· “Focus on the ‘customer experience’ and strategies for making the current stores more productive.
· “Begin addressing the actual issues facing the company and drive revenue growth, rather than focusing on cost-cutting strategies and ‘spin’ campaigns.”
· “Focus on the most immediate and least capital-intensive opportunities to improve the health of the business.
· “Develop and articulate a deliverable promise for the new ‘The City’ brand that works within the realities of the current store footprints.”
In addition to the requested changes, the letter also echoed WCM’s plea on behalf of the five potential board members it nominated in February for consideration at the company’s annual shareholder meeting, scheduled for June 24.
Finally, the letter also encouraged the board to entertain any legitimate third parties who may express interest in acquiring or merging with the company in the future.
Wattles Capital Management, headed by Mark Wattles, owns 11 million shares, or 6.5 percent, of Circuit City’s common stock.